Key Takeaways
- • Flexjet Chairman Kenn Ricci says he no longer advocates M&A or private equity, calling acquisitions a "sign of weakness" in an interview on the David Senra podcast.
- • Ricci recounts that Flight Options generated $100 million in sales in its first three months after its October 1998 launch and $400 million the following year, before a 2001-era cash-flow squeeze led to a 50/50 merger with Raytheon's Travel Air.
- • Ricci says FBO acquisitions that once commanded about six times EBITDA now trade at 15 to 20 times EBITDA, and he describes the FBO market as a "duopoly."
- • Ricci argues that in capital-intensive aviation, "the balance sheet is the whole game," with free cash flow and balance-sheet strength outweighing reported earnings.
- • Ricci's own FBO deal, Mercury Air Centers, was bought with Allied Capital for $80 million in 2005 and sold to Macquarie in 2007 for $615 million.
Summary
Flexjet Chairman Kenn Ricci, who oversees fractional provider Flexjet, jet card seller Sentient Jet, on-demand broker FXAir, and other business aviation companies, has stepped back from the acquisition and private equity strategies that helped build his businesses, according to remarks on the David Senra podcast. Ricci said he "hate[s]" mergers, calling them a sign of weakness, and questioned whether companies need to pay as much as 10 to 12 times cash flow to win market share when they could invest that capital in existing operations. He estimated that 90% of the time companies could grow without an acquisition and said cultural integration becomes nearly impossible when acquired workforces reach 30% to 40% of existing staff.
Ricci's views are shaped by his own history. After launching Flight Options in October 1998, he generated $100 million in sales in its first three months and $400 million the following year. A cash-flow squeeze during the dot-com downturn led to a 50/50 merger with Raytheon's fractional ownership business, Travel Air. Raytheon later bought Ricci out in 2002, an episode he described as the worst day of his life. He reacquired Flight Options in December 2008, paying $15 million in cash and signing a $27 million personal note, and later acquired Flexjet from Bombardier for $180 million.
On private equity, Ricci was sharply critical, saying private equity firms "have to disclose none of that" and are "solely about greed." He argued that private equity investors have consolidated the FBO sector and increasingly focused on extracting revenue from aircraft owners, describing the segment as a duopoly. He acknowledged his own role in that consolidation: after leaving Flight Options under a non-compete that permitted FBO investments, he partnered with Allied Capital to acquire Mercury Air Centers for $80 million in 2005, when it had about 18 locations. After roughly doubling its size, the partners sold it to Macquarie in 2007 for $615 million, with Ricci holding 20% and Allied Capital 80%. Ricci said FBO deals that once traded at about six times EBITDA now command 15 to 20 times EBITDA.
Ricci's central investment principle is that financial strength, not reported earnings, determines survival in capital-intensive aviation. "Forget income, forget EBITDA. It's free cash flow and how strong is your balance sheet," he said. He linked this to Warren Buffett's $750 million acquisition of NetJets in 1998, after which Flight Options grew rapidly and Ricci secured nearly $300 million in debt financing, having previously struggled to raise the $30 million to $40 million needed to launch.
Ricci's views are shaped by his own history. After launching Flight Options in October 1998, he generated $100 million in sales in its first three months and $400 million the following year. A cash-flow squeeze during the dot-com downturn led to a 50/50 merger with Raytheon's fractional ownership business, Travel Air. Raytheon later bought Ricci out in 2002, an episode he described as the worst day of his life. He reacquired Flight Options in December 2008, paying $15 million in cash and signing a $27 million personal note, and later acquired Flexjet from Bombardier for $180 million.
On private equity, Ricci was sharply critical, saying private equity firms "have to disclose none of that" and are "solely about greed." He argued that private equity investors have consolidated the FBO sector and increasingly focused on extracting revenue from aircraft owners, describing the segment as a duopoly. He acknowledged his own role in that consolidation: after leaving Flight Options under a non-compete that permitted FBO investments, he partnered with Allied Capital to acquire Mercury Air Centers for $80 million in 2005, when it had about 18 locations. After roughly doubling its size, the partners sold it to Macquarie in 2007 for $615 million, with Ricci holding 20% and Allied Capital 80%. Ricci said FBO deals that once traded at about six times EBITDA now command 15 to 20 times EBITDA.
Ricci's central investment principle is that financial strength, not reported earnings, determines survival in capital-intensive aviation. "Forget income, forget EBITDA. It's free cash flow and how strong is your balance sheet," he said. He linked this to Warren Buffett's $750 million acquisition of NetJets in 1998, after which Flight Options grew rapidly and Ricci secured nearly $300 million in debt financing, having previously struggled to raise the $30 million to $40 million needed to launch.
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